Volatility Continues

Just a quick follow-up to yesterday’s analysis. Written on the weekend, we posted “Volatility Reigns” yesterday. The equity market volatility and indecisiveness profiled in that analysis was dramatically in evidence again yesterday and today.

Before the market opened yesterday, traders celebrated the news that Warren Buffett was making a major purchase of Precision Castparts. The economic news out of China was depressing with both July import and export figures down over 8%. In the perverse world of “bad news is good news,” that increased the likelihood that Chinese authorities would soon introduce even more stimulus. There were also reports that Greece and its creditors were close to agreement on another bailout for that beleaguered country. Oversold from more than a week of declines, stocks powered ahead, the Dow Industrials up by 254 points at the day’s high, closing up 241 points. Internals were likewise strong with advancing stocks outpacing declines by nearly three-to-one on the N.Y. Stock Exchange and by over two-to-one on NASDAQ. The only cautionary note was that volume was light and below the levels of recent weeks.

Overnight, China implicitly acknowledged its weakening economic performance by devaluing its currency by almost 2%. That precipitated selling of stocks throughout Asia and Europe despite rumors being confirmed that Greece and its creditors reached agreement on a massive bailout that may exceed 90 billion euros. Stocks reversed course in this country this morning with the Dow dropping 263 points to its low, then rising a bit to close down 212 points. Volume intensified on the decline.

Volatility continues, not just week-to-week but day-to-day. And governments and central bankers remain the major players.